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Please note that there are three posts needed to successfully complete the discussion board assignment.
Identify a real-world example of price discrimination (preferably not one from the unit lesson), and explain which type of price discrimination it is. Next, using the good from your chosen price discrimination as an example, illustrate how the good fits the criteria necessary for successful price discrimination. Finally, discuss how the price discrimination example leads to an increase in total benefit to society. Have you ever paid a higher price for something than somebody else did? Ever pay a lower price? How did those experiences make you feel?
• Your initial post should be at least 300 words in length.
• Your initial post should include at least one APA-formatted scholarly, professional, or textbook reference with accompanying in-text citation to support any paraphrased, summarized, or quoted material.
Reply 1
Rose Wiley
Top of Form
Good Afternoon Professor and Class,
The airline industry demonstrates price discrimination because customers experience different ticket prices depending on their booking time frame, seat class choice and demographic profile. Third-degree price discrimination refers to the practice of dividing consumers into distinct groups and setting different prices for each group according to their price elasticity of demand (Varian, 2019). Business travelers face higher ticket prices when booking close to their departure date whereas leisure travelers receive lower prices when they book their travel far ahead. Students and senior citizens generally benefit from reduced ticket prices while first-class passengers incur higher fees.
Market Power: The seller needs to possess pricing power which indicates their market is not perfectly competitive. The airline market operates as an oligopoly where dominant carriers maintain control over most market share which enables them to establish strategic pricing models.
Market Segmentation: The seller needs to identify consumer groups that show different levels of payment willingness and keep them separate. Airlines segment their markets by differentiating business travelers from leisure travelers while offering discounts to targeted customer groups and implementing loyalty programs.
Limited Arbitrage: The ability to resell the service or product at a different price should not be possible for consumers. The non-transferable nature of airline tickets blocks arbitrage opportunities between high-paying customers and low-paying customers.
The airline industry uses price discrimination to enhance societal benefit through better resource allocation. This system enables airlines to fill more seats on their flights thereby decreasing empty trips and improving their operational performance. The airline industry offers more affordable options to leisure travelers which expands access to air travel while business travelers who need adaptable schedules pay premium prices. The system enables airlines to boost their revenue streams while serving a wider customer base which promotes economic growth and job creation within the airline sector (Varian, 2019).
My personal history includes instances where I paid both higher and lower rates for identical products. On one occasion my work trip required a last-minute flight which cost me much more than what my friend paid when booking weeks ahead. I have benefited from student discounts available at movie theaters and museums. The higher price was frustrating to pay but understanding its rationale made it clearer. Getting discounts felt like a special privilege because it helped me experience things without spending as much money.
Reference Varian, H. R. (2019).
Intermediate microeconomics: A modern approach (9th ed.). W.W. Norton & Company.
Bottom of Form
Reply 2
Dusty Matthews
Top of Form
A common example of price discrimination is found in the movie theater industry. Movie theaters often charge different prices based on the time of day, the day of the week, and the age or status of the consumer. For example, matinee showings are typically cheaper than evening showings, and seniors or children often pay lower ticket prices than adults. This example represents third-degree price discrimination, which involves charging different prices to different groups based on observable characteristics such as age, time, or location (Bergemann et al., 2020). In this case, movie theaters differentiate prices based on customer age (children, adults, and seniors) and the time of the showing (matinees vs. prime evening times). Movie theaters usually have a degree of market power in local markets, especially in areas where there are few competing theaters, allowing them to set prices to maximize profits.
Different customer groups have different price sensitivities (Froeb, 2023). For example, seniors and children are more price-sensitive, so offering lower prices helps attract more of these groups. On the other hand, adults, especially in the evening, are less price-sensitive and willing to pay full price. Movie tickets are difficult to resell, especially because they often contain specific time and location information, preventing customers from reselling them at a profit. Movie theaters can easily segment customers based on observable characteristics (age, time of day, or loyalty cards) and apply different prices accordingly.
Price discrimination in the movie theater industry can increase total societal benefit by allowing for more efficient allocation of resources (Froeb, 2023). Offering cheaper tickets during off-peak hours (matinees) encourages more people to attend movies who might not otherwise be able to afford it, increasing overall demand and filling more seats. For theaters, this improves utilization rates and revenue. Additionally, lower prices for children or seniors make it more affordable for these groups to attend, increasing accessibility. Theaters can then reinvest that revenue into better services or more movie offerings, benefiting consumers and society at large (Froeb, 2023).
I’ve often paid a lower price for a movie ticket as a student or during matinee showings, which made me feel like I was getting a great deal. On the other hand, I’ve also paid full price for evening tickets when I didn’t plan ahead, which left me feeling a bit frustrated, especially knowing I could have saved money with a little more planning. These experiences highlight how pricing strategies can influence consumer behavior, encouraging people to make decisions based on timing or their specific demographic.
References:
Bergemann, D., Castro, F., & Weintraub, G. Y. (2020). Uniform Pricing Versus Third-Degree Price Discrimination.
SSRN Electronic Journal.
Froeb, L. (2023). Managerial Economics: A Problem Solving Approach (6th ed.). Cengage Learning US.
